Spain's Valencia region asks Madrid for financial aid

Spain's heavily indebted eastern region of Valencia said Friday it would apply for financial help from the central government as it can not find the funds to meet its financial obligations.

The region will seek an undisclosed amount from a new public fund worth up to 18 billion euros ($21.9 billion) set up by Madrid last week to help embattled regions, the regional government of Valencia said in a statement.

"The regional government of Valencia has agreed today to adhere to the new financing mechanism set up by royal decree on July 13 which is destined to inject liquidity in the autonomous communities," the statement said.

"Valencia, like in other autonomous regions, is suffering the consequences of the liquidity shortage in markets due to the economic crisis," it added.

Valencia is the first region to seek aid from the new public fund, which is to by financed by a loan from the national lottery of six billion euros with the rest coming from the Spanish treasury.

In May, Madrid secured a five-year syndicated loan of 30 billion euros that will allow regional governments, currently shut out of the international debt markets, and city halls to refinance their debts and pay suppliers.

In the past year, students in several state schools in Valencia were forced to attend class wearing hats and covered in blankets because supplier bills had not been paid and the heating was cut off.

Spain's 17 regional governments, which fund education and health, are crucial to the country's efforts to slash its public deficits and rein in mushrooming sovereign debt.

They are blamed for two-thirds of Spain's deficit slippage last year, when the country missed its target of keeping the deficit to 6.0 percent of economic output and instead let it slide to 8.9 percent.